Published on January 09, 2020
Written by The Servion Group
This article is a compilation of material from Freddie Mac and the Mortgage Bankers Association, originally reported by Housing Wire.
In the fall of 2018, mortgage rates nearly hit 5 percent, a level not seen since the early 2010s. But now, at the beginning of the new decade, mortgage rates are more than a full percentage point lower than that, comfortably back in the 3-4 percent range.
And according to a new forecast from Freddie Mac, mortgage rates should stay that low for the rest of this year and well beyond that.
In Freddie Mac’s newest housing market forecast, the company’s economic and housing research group states that they expect mortgage rates to remain around 3.8 percent for all of 2020 and 2021.
As other recent forecasts and mortgage market data has shown, 2019’s unexpectedly low mortgage rates drove a rise in refinances, as well as a surge in home purchases, throughout the year, making it a great year for the mortgage business.
A recent prediction from the Mortgage Bankers Association is that by the time final numbers are calculated, 2019 may have been the best year for refis since 2016, and the best year for purchase mortgages since the peak of the housing bubble in 2006. In early December, the MBA predicted 2019 home lending would hit a 12-year high of $2.07 trillion. Of that, $1.27 trillion would be purchases and the remaining $770 billion-plus would be refinances. We’re too early in 2020 to know whether those projections were met, but MBA projections are typically not far off.
In its latest forecast, the government-sponsored enterprise (GSE) expects the refinance market to generate $834 billion in 2020, just slightly less than 2019’s predicted $846 billion. It would also exceed 2018’s refi volume by more than $300 billion.
On the purchase side, Freddie Mac is expecting $1.25 trillion in purchases by the time all the 2019 data comes in, not far off from the MBA’s predicted $1.27 trillion. And, the GSE expects that figure to rise in both 2020 and 2021.
Freddie Mac expects $1.299 trillion in purchase originations in 2020 and $1.369 trillion in purchase originations in 2021.
Overall home sales are also expected to rise in each of the next two years. Freddie Mac expects to see 6 million home sales once final 2019 figures are in, 6.1 million home sales in 2020, and 6.2 million in 2021.
Despite home sales and purchase originations projected to rise over the next few years, Freddie Mac currently expects 2021 to see a decline in total mortgage volume from 2020’s expected level due to a decline in refis.
The GSE’s forecast expects to see just $429 billion in refis in 2021, barely half of the volume predicted for 2020. Perhaps it’s a function of there simply not being that many people left who have not refinanced their mortgage by then, especially if mortgage rates stay as low as expected.
Overall, Freddie Mac expects there to be $2.101 trillion in total mortgage originations in 2019, right in line with the MBA’s $2.07 trillion mentioned above. Freddie Mac then goes on to predict $2.13 trillion in originations in 2020, and $1.79 trillion in 2021.
The GSE also expects home price growth to slow over the next few years, with annual growth rates of 3.2 percent, 2.9 percent, and 2.1 percent in 2019, 2020, and 2021, respectively.
“The economy saw increased volatility in November as hopes for a favorable resolution to the trade dispute waned,” said Sam Khater, Freddie Mac’s chief economist. “However, given low interest rates, modest inflation and a solid labor market, the U.S. housing market continues to stand firm, and, our forecast is for the housing market to maintain momentum over the next two years.”
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